Tony and All - The Intel Bulls Aren't Yet Hibernating
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Friday December 20 2:20 PM EST
Intel seen shining in '97 amid PC buying binge
By Barbara Grady
SAN FRANCISCO, Dec 20 (Reuter) - As the world's largest maker of computer chips, Intel Corp has
certainly benefited from the recent wave of computer purchases by businesses both large and small, and with
a host of nifty new consumer products just around the corner, industry experts predict Intel's best days are still
to come.
"Two things are happening in the PC market that have not happened in a long time," said Robertson,
Stephens analyst Dan Niles.
"You've got a major corporate upgrade going on and you've got a heck of a lot of stuff coming out in the
consumer market," that will drive consumer PC buying.
Indeed, with devices such as digital video disk (DVD) drives and PC's powered by Intel's new multimedia
chips due to arrive on store shelves early next year, many analysts are predicting Intel's stock price, which
has doubled in the last six months, could hit $200 sometime next year.
On Thursday, Intel rose $2 to $137.75.
Niles said the semiconductor giant is "at a major inflection point," using a phrase coined by Intel's Chief
Executive Officer Andy Grove to describe a situation where a lot of forces are converging at once to change
a business's environment.
Not only does Intel already dominate the personal computer microprocessor market, but its Pentium family of
chips is also quickly becoming the standard for corporations seeking to upgrade their computer systems to
Microsoft Corp more powerful Windows NT operating system.
On top of that, Intel has found ways to make its manufacturing more efficient, a move which is sure to instill
fear in the ranks of its competitors.
Its top manufacturing executive said last week that Intel has plans in place to squeeze about 10 percent more
production out of existing fabrication plants next year than it planned.
Hambrecht & Quist analyst Rob Chaplinsky estimates Intel will produce 20 percent more PC
microprocessors next year than in 1996. With production rising faster than its costs, Intel's gross margin
could reach the low 60 percent range, Chaplinsky said, up from the third quarter's already strong 57.2
percent.
"The subtle thing with Intel is it has been valued in the past as a semiconductor company and now it is
beginning to be valued as a growing monopoly," said Bob Herwick, president of Herwick Capital
Management.
As the dominant microprocessor supplier, it avoided the worst effects of the inventory glut that swept the
semiconductor industry in 1996 because its view of demand is not blurred by competition, he said.
While much of this year's increase in PC sales can be attributed to corporate buyers, analysts say
consumers are expected to buy PCs at an even faster rate starting in early 1997, when DVD drives start
rolling out and PCs with Intel's new multimedia chips hit store shelves. Also major PC manufacturers are
scheduled to introduce $1,000 systems that despite their low cost sport quite a bit of power.
Herwick said a $200 share price target for Intel is not a wild number, but can be arrived at even with a
"certain amount of conservatism."
Reaching $200 next year would mean a multiple of 25 times the $8 a share estimate many analysts have for
its 1997 earnings. That, Herbert notices, is less than the growth of the other proprietor in the "Wintel"
monopoly, Microsoft, which enjoys the roughly same 90 percent market share in the PC operating system
market that Intel does in the PC microprocessor market.
Niles also targets a $200 share price for Intel, while Montgomery Securities' Jon Joseph said he sees it
hitting $175 in the next year.
According to First Call, the average mean estimate for this quarter's earnings is $1.82 a share -- a whopping
86 percent hike from last year's fourth quarter. For 1997 the analysts' consensus is for Intel to earn around
$7.76 a share.
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Paul |
